US adds 263,000 jobs; unemployment rate falls to 3.5% in September

U.S. employers hired more workers than expected in September, while the unemployment rate dropped to 3.5%, pointing to a tight labor market which keeps the Federal Reserve on its aggressive monetary policy tightening campaign for a while.
 

Nonfarm payrolls increased by 263,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Data for August was unrevised to show 315,000 jobs added as previously reported.
 

Economists polled by Reuters had forecast 250,000 job gains, with estimates ranging from as low as 127,000 to as high as 375,000.
 

The unemployment rate was at 3.7% in August.
 

With the labor market still tight, wage gains remained solid. Average hourly earnings increased 0.3% after a similar rise in August.

That lowered the annual increase in wages to 5.0% from 5.2% in August. The Atlanta Fed's wage tracker, which controls for compositional effects like skill level, occupation and geography, is running above 6%.
 

The labor market has largely been resilient to the higher borrowing costs and tighter financial conditions, with economists saying businesses are reluctant to lay off workers following difficulties hiring in the past year as the COVID-19 pandemic forced some people out of the workforce, partly due to prolonged illness caused by the virus.
 

While government data this week showed job openings dropped by 1.1 million, the largest decline since April 2020, to 10.1 million on the last day of August, there are still 4 million more vacancies than there are unemployed Americans. An Institute for Supply Management survey on Wednesday also showed several services industries reporting labor shortages in September.
 

But with the headwinds from higher borrowing costs and slowing demand rising, economists expect companies will significantly pull back on hiring, with negative payrolls likely next year. Economists say businesses have been backfilling open positions as they struggled to expand headcount to match increased demand for their products, driving up job gains.
 

The U.S. central bank has hiked its policy rate from near-zero at the beginning of this year to the current range of 3.00% to 3.25%, and last month signaled more large increases were on the way this year.
 

September's consumer price report next Thursday will also help policymakers to assess their progress in the battle against inflation ahead of their Nov. 1-2 policy meeting.
 

Financial markets have almost priced-in a fourth 75-basis points rate increase at that meeting, according to according to CME's FedWatch Tool.